Payment and pay less notices – a brief summary

The Court remains focused on enforcing the payment mechanism set out in a contract or in ‘the Construction Act’ and whilst the works are progressing if a party fails to serve the relevant notices within the prescribed period, it does so at its own risk.

Since the amendments to the Housing Grants Construction and Regeneration Act 1996 (as amended) (‘the Construction Act’) came into force and applied to contracts entered into on or after 1 October 2011, the onus is on the paying party to ensure that it serves a payment notice within the number of days prescribed in the contract or the Construction Act. If it fails to do so it risks the amount claimed in an interim application being the sum due and payable.

The paying party can still serve a pay less notice that sets out that the sum that it considers is due and the basis on which it has been calculated, even if the sum is £nil.

However, if the paying party fails to serve a valid pay less notice the amount claimed in the interim application (if it sets out the basis upon which the sum claimed as being due has been calculated) is likely to be the amount that must be paid.

Following the Court of Appeal’s decision in MJ Harding Contractors v Paice and Springall [2015], it is now clear that, in respect of final account scenarios, the failure by the paying party to issue a pay less notice is not fatal, as the employer is not deemed to accept the valuation contained within the contractor’s final account and can have the value of those works determined by a separate action (whether that be another adjudication or litigation).

However, the Court of Appeal decided not to comment on the decision in ISG Construction Ltd v Seevic College [2014] which held, in respect of an interim payment application, that if a paying party fails to serve a payment certificate or pay less notice then it will be deemed to have agreed the valuation in the relevant interim application and, accordingly, an adjudicator dealing with a claim by a contractor for non-payment by the paying party must be taken to have decided the value of the work in respect of the interim application in question.

Each case will depend on its own facts. There are cases where the Court has found that the interim application relied upon was not a valid payee notice as it failed to set out how the sum claimed as due had been calculated, or because it was not clear that it was intended to be or could be treated as an interim application. The sums claimed have been found not to be due in those circumstances.

At present, the position is respect of the final account or an interim application is different with the approach to interim applications more advantageous to the contractor. No doubt the difference in approach towards interim applications and final accounts will continue to occupy the Court again.